For me, the most significant thing anyone in economics said in the past week was an apparently throwaway remark from Sir Mervyn King at the end of his Inflation Report press conference (emphasis mine):
There is enormous uncertainty out there. You refer to the changes which are being made in the euro area and the United States; I think it goes well beyond that.
So the big challenge – and the one which I hope we will have a chance to discuss in Moscow – is the fact that we keep talking about the need for the world economy to rebalance but actually we’re pretty ineffective in achieving that.
And much of the reduction in the deficits that have occurred, the external deficit that’s occurred since 2008, has been the consequence of a sharp fall in world activity and growth. And what we need to do is to find a way back to a better path for the world economy as a whole which has to imply some rebalancing if it’s to prove sustainable. And it’s how we can explain that and have a shared understanding of the way we’re going to get back to that new path which I hope will come out of the G20 in Moscow.
In other words, we have failed to rebalance the world economy – whether you’re talking about the disparities between China and the US/UK or between Germany and Greece/Spain/Portugal. What has, thus far, looked like an improvement in the situation: China’s falling trade surplus and the US’s rising one, for instance, is more down to changes in world growth than genuine structural overhaul of those economies.
There’s a growing section of political and economic life that believes the crisis is over and that it’s back to the races. But all the inherent imbalances in the world’s monetary system – the very stuff which led to the crisis in the first place – are still as entrenched as ever.
Oh and, in case you were wondering, I’m afraid the G20 didn’t solve it all in Moscow over the weekend.
The full Inflation Report Transcript can be found here [pdf].